The iPhone 7 is expected to be released this fall, so production should be starting in the next few months, and already Qualcomm may be taking a hit from Apple’s diversification efforts. However, Credit Suisse analysts don’t see any problem here as they have been expecting this to happen for quite some time.
Quantifying the iPhone 7’s impact on Qualcomm
In a report dated March 10, analyst Kulbinder Garcha and his team noted that there have been murmurings for quite some time that Apple would move some of its orders away from Qualcomm and toward Intel. Their research suggests that 20% to 30% of Apple’s iPhone 7 chip orders might go to Intel rather than Qualcomm, and this same percentage could apply to future iPhone models as well.
They said for calendar year 2017, it means Qualcomm could lose $670 million with an average selling price of $12.50 per iPhone 7 chip and a 50% incremental margin. Further, they said losing some of Apple’s orders might create earnings headwinds of up to 37 cents per share.
However, the Credit Suisse also clarified that Apple has some problems to solve before it can begin diverting some of its iPhone orders from Qualcomm. For example, the iPhone maker must work on moving away from its current strategy of using a single SKU, and it must fix the fact that its phones don’t work with CDMA technology.
No worries about Qualcomm
It’s unclear at this point whether Apple has dealt with these problems sufficiently enough to start diversifying its supply chain with the iPhone 7 this year or whether it will begin at some point, although Qualcomm’s analysts do say it could start this year with the iPhone 7. However, they think their estimates are conservative enough that losing some of Apple’s chip orders won’t have a massive impact on the chip maker.
Eventually, they think it might be lose as much as 50% of Apple’s iPhone chip orders, but once again, they think Qualcomm is diversifying enough, particularly in the area of the Internet of Things and Automotive, that it will be able to handle losing those orders.
Still other chip buyers in the sea
It should also be noted that Apple isn’t the only whale in the sea as we’ve heard reports that Qualcomm’s Snapdragon 820 chips will power LG’s G5 smartphone. Also last month it was reported that Google might dump Intel for its server chips and switch to Qualcomm, so there’s plenty of business to be had in the chip market, although Apple is undoubtedly seen by many investors as being one of the crown jewels among chip customers.
Qualcomm shares edged lower by 0.24% to $51.82 in afternoon trading on Thursday.
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